- 1). Determine the cost of rent for the space in which the faculty practice operates. In some cases, practices may be on university campuses and simply receive a cost allocation from the university at internal rent rates, which are typically cheaper than market rates. However, many practices are off-site and pay commercial rent. In such cases, lease contracts will have this information.
- 2). Tally your committed compensation costs for everyone associated with the practice, including support staff. Do not include performance-based or bonus compensation in this calculation, only base salaries and estimated annual totals of hourly wages.
- 3). Add up your administrative costs including billing, collections, marketing, advertising and any other budgeted administrative or constant expenses as approved by your board of directors or dean.
- 4). Review your malpractice insurance premiums.
- 5). Calculate the sum of your accounting, legal and other professional consulting fees.
- 6). Tally your consumables, including office and administrative supplies, utilities, postage and medical supplies.
- 7). Determine your capital expenditures for office and medical equipment. If you lease any equipment, monthly lease rates fall into this category.
- 8). Project the refunds, write-offs and bad debt costs you incur in an average year.
- 9). Calculate the practice's payment to the university. Most schools take a percentage of faculty practice revenues to give to their medical or nursing colleges. For example, New York University takes 5 percent from its faculty practice revenue. You will need a budgeted or estimated revenue, or last year's revenue total as a reference.
- 10
Add all the figures from Steps 1 through 9 to get your total overhead. This number does not include bonuses, performance compensation or fringe benefits that faculty practices may elect to give in a budget year. Additionally, many schools withhold bonuses if faculty practice revenues do not exceed their standard operating expenses.
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